The emotional consequences of debt have plagued American student loan borrowers for decades. What seems like a good idea at the time to take out a loan, often comes back to haunt borrowers for years to come. In fact, some borrowers go their entire lives paying back these loans. And while the emotional toll that debt plays on these borrowers might seem controversial to some, recent studies have actually confirmed the negative effects.
Study Confirms Harmful Emotional Effects of Student Loans
The University of South Carolina along with the University of California LA recently conducted a study, the first of its kind, and looked specifically at the effects of student debt on a borrower’s mind frame. As to be expected with any type of debt, the student loan borrowers endured high levels of stress and depression in their lives. And unfortunately, the middle-class borrowers tend to suffer from these effects on a greater level because of two influencing factors — 1) they are not generally eligible for government assistance, 2) their parents are not able to help them from a significant monetary standpoint in paying back their loans.
When students leave college, they undoubtedly understand that it is time to get a job. Many of them already have jobs, but they are under the impression that their newly-earned degrees are going to set them up for success. What happens to a large number of these students, though, is they leave college and find that financial security seems farther out of reach than it ever has been. See, while earning a degree, most student loans don’t have to be repaid. Upon leaving college, though, the reality of the debt sets in. And according to a survey conducted by Student Loan Hero, respondents stated that as a result of realizing it was time to pay back their debt they experienced a variety of mental health-related conditions, including:
- Apprehension or the feeling of dread
- Social isolation
- Sleepless nights
This survey concluded that nearly 65 percent of respondents reported they lose sleep at night due to stressing over how they are going to repay their student loans. And according to NHS, a lack of sleep can lead to a variety of harmful effects on the body, including obesity, diabetes, heart disease, increased blood pressure, and more. As you can see, the effects of student loan debt go way beyond losing a night or two of sleep.
Big Loan Payments Lead to Negative Mental Health Effects
It’s not so much that these borrowers are surprised at the fact they must repay their loans; it’s the fact that they never accounted for how expensive their repayment amounts were going to be. Take for example a borrower who graduates with $37,000 in student loan debt with a 6.8 percent interest rate. In order to pay back the loans in 10 years, a monthly loan payment of $425.80 will need to be paid. Once the funds are paid back, the student will have paid more than $14,000 in interest. If an extended repayment term is obtained, the interest will continue to accumulate, costing the student even more.
Having a monthly payment of $425.80 for 10 years can be exasperating. Unless a person is earning at least $50,000 a year, this loan payment will exceed at least 10 percent of the person’s income each year. According to Gradifi’s founder and CEO, Tim DeMello, “People with student loan debt are carrying a serious financial and emotional burden. The pressure of making big monthly loan payments is taking its toll in terms of stress, housing affordability and quality of life.” He goes on to say that the average repayment for a borrower with a bachelor’s degree is around $265 a month. “You have some students with $400, $600, $800 or even $1,200 a month in student loan payments.”
Is there a solution?
Even though student loan debt can be incredibly burdensome, there are steps borrowers can take to reduce their stress. For starters, if a payment is too large, a reduced payment plan may be available. Deferments and forbearances are available to those who qualify, but it is suggested not to take advantage of these options unless absolutely necessary. Deferments and forbearances simply put off having to repay the loan. They don’t decrease the amount to be repaid.
Another solution to reducing the harmful mental health effects of student loan debt is to secure employment through an employer that offers a student loan repayment benefit. And while there are not many firms that offer this type of assistance, there are some, and borrowers should definitely look at the advantages they offer. For example, if a borrower has $26,500 in student debt with an interest rate of four percent and his employer makes a $100/month contribution toward the debt, this will save the borrower more than $10,000 and will help pay off the loan three years faster.
Dr. Nancy Irwin, a clinical psychologist, says there is much power to be achieved “when you do take control, whether taking control involves creating a new student loan payoff plan, finding a therapist to talk to, or a combination of these and other moves.” She goes on to say that “assertive, powerful people factor student loan debt into their overall life plan…”
It’s time for loan borrowers to be more aware of the financial situation they are getting themselves in when taking out loans. Sure, going to college is an excellent career move to make but only if the degree being earned suffices for the amount of money being borrowed. Students should carefully evaluate their career preferences and make sure they are borrowing money to earn a degree that will ensure they are able to comfortably pay back their loans.